Property Tribes - Ep2 Property Topics Going Head to Head with Paul Mahoney - Close to Home or Remote - Nova

Property Tribes – Ep2 Property Topics Going Head to Head with Paul Mahoney – Close to Home or Remote

Vanessa Warwick:

well, welcome to day two of our themed week, which we’re calling, Property Topics Going Head to Head. It’s powered by our friends at Nova Financial and Nova MD. Paul Mahoney is joining me all this week and we intend to have a few robust discussions on some of the topics that we don’t necessarily agree on. But as we stated at the beginning of the week, this is one of the healthiest ways to learn and grow. To listen to different opinions and then kind of understand the logic behind those opinions and build your own kind of view from that rather than just taking a single person’s view on board and accepting that that is the carte blanche view. So, Paul, today we are moving on to another topic where, hopefully, we can have a few good strong interactions. And this one is whether you should buy close to home or further afield.

Vanessa Warwick:

Now, I am very firmly planted in the close to home corner. And really my reason for this, Paul, is that it’s all about risk mitigation, because if you buy, say within a 10 to 15 mile radius of where you live, you do know the area. You feel comfortable there and you have good insights into the area itself, the pros and the cons of that area. And clearly, if you’re starting out, you may need to do a lot of due diligence and view lots of properties and start building relationships with local agents. And this is really my main reason to start investing close to home. So, what’s your rebuttal to that?

Paul Mahoney:

I understand all of that logic, although I don’t necessarily agree with it from an investment perspective. And again, just to clarify, the way that we look at property is very unemotional and commercially-minded. My background is in investment advice and financial planning. And we look at property as a vehicle for making money. That’s pure and simple. And I know that some people aren’t that sort of numbers-driven or sort of unemotional as I put that, but that’s how we look at it. Now, I suppose my take would be, I have clients in Australia, the Middle East, the other side of the world. Their investments in, let’s say, Manchester have performed just as well as our clients that live in Manchester. Now, I suppose there’s a few caveats here. You obviously need to have a good team around you.

Paul Mahoney:

If you’re going to not be nearby, the properties need to be fully managed for you. You need to be able to rely upon the people that are managing them for you. They’re going to get tenants in quickly and look out for the place. Pretty much, that’s really what you want from a property manager. So you need that because if you don’t have that, you’re not able to rely upon that team then that makes it much more difficult. An analogy or comparison I sometimes use for this is, if you think about this business card, for example, as the 10 mile radius around your home and this room as the market, the probability of the best investment being on that business card is probably pretty slim. When you come to choosing a home, it’s a very emotional decision.

Paul Mahoney:

You buy what you like and love, you buy it close to work, close to your kids’ schools. It’s nothing to do with making money. And therefore, if there is a good investment around the corner, that’s solely by luck than by the research and due diligence that you do on the whole market. And I think sometimes people limit themselves too much to their local area because of the logic you’ve given. You’re not going to make a bad invest … Well sometimes … Let me take a step back. Sometimes you might make a bad investment by doing that because your area may not make sense to invest in. And there might be a fantastic investment an hour or two away from home that you’ve completely ruled out because it doesn’t fall within your radius. Now, again, another caveat to that is if you’re going to invest away from home, you either need to have the time and the know-how to get familiar with that area yourself, or to engage with somebody who is already familiar with that area and that you can trust to give you that familiarity.

Vanessa Warwick:

Well, you’ve certainly come up with a very compelling argument there. I can feel myself coming a little bit your way, Paul. And I think the other interesting thing is, and I’m sure we’ll touch on this a number of times throughout the week, is that people’s strategies, strategies that add to appetite to risk. It changes over the course of their investment career. So, I can definitely agree with you. I would always say, start out close to home, but once you’ve got some landlord experience, you’ve fully understood the process of how to vet a letting agent, which we’ll put a thread underneath this video, actually, an actual process of how to do that. Once you’ve learned all those kind of important and basic landlord skills, then you should start to think about branching out a little bit.

Vanessa Warwick:

And I think that COVID-19 has brought this very much into sharp focus because we’ve had a number of towns and cities that had very specific industries dominating that town and city. And because those industries that they’re involved with have been really decimated by COVID-19 lockdown, it’s affected the whole area. Now, if that was your hometown and you were living in say, I don’t know, say Croydon where there’s a huge amount of airport staff and airport support workers. And it’s like having all your eggs in one basket, isn’t it? So, I think once you’ve learned your kind of landlord skills, then, in my view, that would be the time to look further afield to mitigate risk. And if you’re in the Southeast of England like I am, you might like to have some stock in Southeast, but also some stock up North so that you’ve got the best of both worlds.

Paul Mahoney:

Yeah. And certainly something that we’ve found over the past four to five years is that because of changes in the market, such as section 24, and stamp duty changes, mortgage serviceability, London becoming very expensive, yields not keeping up, so on and so forth. We found that more and more people that live in London and the Southeast have started to become more open to other areas because it’s become more and more difficult. Especially when looking at a traditional buy-to-let. If you’re buying a property with a 75% loan-to-value mortgage, you’re renting it out on a 12 month AST, in London, you’re lucky to be getting a three and a half percent gross yield. Well, that’s the average. So, net yield, you’re probably not getting very much at all.

Paul Mahoney:

And therefore, you’re gambling on capital growth in a location that’s already grown substantially. So, that’s hard to justify, in my head anyway, especially when you run the numbers and you compare the numbers, there’s no comparison between the two. But I can see why some people feel more comfortable with London, for example, because there’s a lot going for it. You have all the fundamentals and that’s why it’s grown so much. But whether that continues based upon affordability and all those sorts of things, is a bit of a question mark, I think.

Vanessa Warwick:

I think I would just like to pick up again, Paul, on your point about having the right people supporting you in the local area. And we’ve already said that a reputable letting agent is absolutely vital. And we will give some research on how to assess a letting agent. But a little example I just want to share with you from many, many years ago, a friend of mine bought a flat that was 200 miles away from her and she couldn’t get it let out. And the letting agent just said, “Oh, sorry. It’s just sticking on the market.” Anyway, she happened to be in the area one day and she thought, “Oh, I’ll go and look at my flat because I haven’t really seen it since I bought it.”

Vanessa Warwick:

And she went to her rental flat expecting, of course, that it would be empty. But in fact, and this is quite embarrassing, the letting agent had set it up as a lovenest for his mistress. I know it’s a bit of an extreme example, but if you’re not there on the grounds, you may not be aware of things going on at your property. And I think this is a good thing when a great agent comes into play, but also, possibly befriending neighbors and asking them just to keep an eye for you as well.

Paul Mahoney:

Yeah. Look, I agree that there is more chance of being led astray if it’s further from home. But again, that comes down to the people that you’re relying upon. I think another thing that plays into that is the property and the location, because if you’re extremely confident in the property and the location, you’re less likely to have issues like the worst case example of your friend. For example, if you own a property in the center of a major city, you know it’s going to rent pretty much every day of the year without too much effort. And that reduces the risk substantially regardless of where you live.

Vanessa Warwick:

Okay. Well, we do hope that you will add your thoughts below the video as to whether you think it’s better to invest close to home, or whether it’s better to go further afield if that is going to result in a more profitable property deal. We’d be very interested to hear actual personal experiences and anecdotal evidence of why you support which argument. That is all part of this week. We really want to tease out the issues through robust debate. And tomorrow, Paul, we’re going to be approaching the thorny topic of North versus South. So, I’m sure there’ll be plenty to talk about there.

Paul Mahoney:

Yeah, absolutely.

Vanessa Warwick:

Fantastic. Okay. Well, join us tomorrow. We’ll be continuing with our Property Topics Going Head to Head themed week powered by Nova Financial. And, as I said, in the blue corner it would be me for down South, and in the red corner it will be Paul for up North. So, do join us tomorrow, but for now, thanks for watching this one and we’ll see you next time.

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